<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------------- -------------
Commission file number 0-11668
------------------------------------------------
INRAD, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2003247
- --------------------------------------------- ----------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
INRAD, INC. 181 LEGRAND AVENUE, NORTHVALE, NJ 07647
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(201) 767-1910
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Common shares of stock outstanding as of October 28, 1997:
2,109,271 SHARES
<PAGE>
INRAD, Inc.
INDEX
PAGE NUMBER
PART I.FINANCIAL INFORMATION........................................ 1
Item 1. Financial Statements:
Consolidated Balance Sheet as of September 30,
1997 (unaudited)and December 31, 1996................... 1
Consolidated Statement of Operations for the Three
and Nine Months Ended September 30, 1997 and 1996
(unaudited)............................................. 2
Consolidated Statement of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 (unaudited).... 3
Notes to Consolidated Financial Statements.............. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 6
PART II.OTHER INFORMATION........................................... 9
Item 6. Exhibits and Reports on Form 8-K........................ 9
SIGNATURES.......................................................... 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INRAD, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 172,447 $ 194,577
Certificate of Deposit 70,000 70,000
Accounts receivable, net 751,132 735,160
Inventories 1,656,964 1,735,144
Unbilled contract costs 91,996 59,350
Other current assets 23,794 60,292
------------ ------------
TOTAL CURRENT ASSETS 2,766,333 2,854,523
PLANT AND EQUIPMENT, NET 1,115,451 1,431,931
PRECIOUS METALS 279,247 279,248
OTHER ASSETS 165,014 149,503
------------ ------------
TOTAL ASSETS $ 4,326,045 $ 4,715,205
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - Bank $ 112,500 $ 92,500
Current obligations under capital leases 20, 611 73,399
Accounts payable and accrued liabilities 825,574 640,943
Advances from customers 85,627 73,244
Other current liabilities 14,107 48,865
------------ ------------
TOTAL CURRENT LIABILITIES 1,058,419 928,951
NOTE PAYABLE - BANK 137,500 227,500
OBLIGATIONS UNDER CAPITAL LEASES 10,670 4,751
SECURED PROMISSORY NOTES 250,000 250,000
SUBORDINATED CONVERTIBLE NOTES 1,203,261 1,203,261
UNSECURED DEMAND CONVERTIBLE NOTE 100,000 100,000
NOTE PAYABLE - SHAREOWNER 566,049 566,049
------------ ------------
TOTAL LIABILITIES 3,325,899 3,280,512
------------ ------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common stock: $.01 par value; 2,121,571
shares issued 21,216 21,216
Capital in excess of par value 6,051,791 6,051,791
Accumulated deficit (5,021,061) (4,586,514)
------------ ------------
1,051,946 1,486,493
Less - Common stock in treasury,
at cost (12,300 shares at
September 30, 1997 and at
December 31, 1996) (51,800) (51,800)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 1,000,146 1,434,693
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $4,326,045 $4,715,205
------------ ------------
------------ ------------
See Notes to Consolidated Financial Statements.
1
<PAGE>
INRAD, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $ 1,412,167 $ 1,307,043 $ 3,714,402 $ 3,871,342
Contract research and development 109,925 122,973 314,971 450,616
----------- ----------- ------------ ------------
1522,092 1,430,016 4,029,373 4,321,958
COSTS AND EXPENSES:
Cost of goods sold 1,059,631 995,181 2,856,184 3,020,977
Contract research and development expenses 106,632 124,406 310,105 451,203
Selling, general and administrative expenses 323,078 275,616 1,024,893 915,655
Internal research and development expenses 25,001 61,877 87,686 129,752
----------- ----------- ------------ ------------
1,514,342 1,457,080 4,278,868 4,517,587
----------- ----------- ------------ ------------
OPERATING PROFIT (LOSS) 7,750 (27,064) (249,495) (195,629)
OTHER INCOME (EXPENSE):
Interest expense (63,895) (70,439) (193,719) (215,007)
Interest and other income, net 5,098 2,733 8,666 16,372
----------- ----------- ------------ ------------
NET INCOME (LOSS) (51,047) (94,770) (434,548) (394,264)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (4,970,015) (4,512,234) (4,586,513) (4,212,740)
----------- ----------- ------------ ------------
ACCUMULATED DEFICIT, END OF PERIOD $(5,021,062) $(4,607,004) $ (5,021,061) $(4,607,004)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
NET INCOME (LOSS) PER SHARE $(0.03) $(0.05) $(0.21) $(0.19)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING 2,109,271 2,109,271 2,109,271 2,109,093
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
INRAD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
----- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(434,548) $(394,264)
--------- ---------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 398,028 418,596
Noncash interest - 123,269
Gain on sale of equipment (3,800) (8,621)
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable (15,971) 147,782
Inventories 78,180 154,854
Unbilled contract costs (32,645) 76,130
Other current assets 36,498 33,307
Precious metals 0 754
Other assets (22,818) (16,093)
Accounts payable and accrued liabilities 207,321 (56,973)
Advances from customers 12,383 (47,770)
Other current liabilities (34,757) (35,128)
--------- ---------
Total adjustments 622,419 790,107
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 187,871 395,843
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (74,239) (178,577)
Proceeds from sale of equipment 3,800 299,180
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (70,439) 120,603
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of note payable - Bank (70,000) (45,000)
Principal payments of capital
lease obligations (69,562) (156,448)
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (139,562) (201,448)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (22,130) 314,998
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 194,577 37,981
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 172,447 $ 352,979
--------- ---------
--------- ---------
See Notes to Consolidated Financial Statements.
3
<PAGE>
INRAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of
INRAD, Inc. (the "Company") reflect all adjustments, which are of a normal
recurring nature, and disclosures which, in the opinion of management, are
necessary for a fair statement of results for the interim periods. It is
suggested that these consolidated financial statements be read in
conjunction with the audited consolidated financial statements as of
December 31, 1996 and 1995 and for the years then ended and notes thereto
included in the Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission.
INVENTORY VALUATION
Interim inventories as well as cost of goods sold are computed by using the
gross profit method of interim inventory valuation and applying an
estimated gross profit percentage based on the actual values for the
preceding fiscal year, unless the Company believes that a different gross
profit percentage may more accurately reflect its current year's cost of
goods sold and gross profit.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and the tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of common shares outstanding. The effect of common stock equivalents has
been excluded from the computation because their effect is antidilutive.
4
<PAGE>
NOTE 2 - INVENTORIES AND COST OF GOODS SOLD
For the nine month period ended September 30, 1997, the Company used 76.9%
as its estimated cost of goods sold percentage. For the previous year,
1996, the actual cost of goods sold percentage was 74.8%. The Company
believes 76.9% better approximates the expected 1997 annual cost of goods
sold percentage based on estimated profitability of actual sales through
September 30, 1997 and the anticipated annual level of product shipments
and related costs.
For the nine month period ended September 30, 1996, the Company used 78% as
its estimated cost of goods sold percentage.
NOTE 3 - DEBT
NOTE PAYABLE - SHAREOWNER
By mutual informal agreement, the Company has deferred certain interest
payments to its principal shareowner. During the nine month period ended
September 30, 1997, the Company did not make any interest payments. The
Company's ability to make the remaining quarterly interest payment in 1997
is subject to adequate cash flow.
Although by its terms the indebtedness to the shareowner is due on December
31, 1996, it cannot be repaid until the Chase Manhattan Bank debt has been
repaid in full, which is expected to be on September 1, 1999. The
shareowner loan has been classified as noncurrent in the accompanying
balance sheet because the shareowner has agreed not to demand payment prior
to October 1, 1998.
UNSECURED DEMAND CONVERTIBLE NOTE
Although by its terms the Note is due on demand, it cannot be repaid until
the Chase Manhattan Bank debt has been repaid in full. The Demand Note has
been classified as noncurrent in the accompanying balance sheet because the
Note holder has agreed not to demand payment prior to October 1, 1998.
SECURED PROMISSORY NOTE
Although by its terms the Note is due on July 8, 1997, it cannot be repaid
until the Chase Manhattan Bank debt has been repaid in full. The
Promissory note has been classified as noncurrent in the accompanying
balance sheet because the Note holder has agreed not to demand payment
prior to October 1, 1998.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information contains forward-looking statements, including
statements with respect to the revenues to be realized from existing
backlog orders and ability to generate sufficient cash flow in the future.
The Company wishes to insure that any forward-looking statements are
accompanied by meaningful cautionary statements in order to comply with the
terms of the safe harbor provided by the Private Securities Reform Act of
1995. Actual results may vary from these forward-looking statements due to
the following factors: inability to maintain customer relationships and/or
add new customers; unforeseen overhead expenses that may adversely affect
financial results or other inability's to operate with a positive cash
flow. Readers are further cautioned that the Company's financial results
can vary from quarter to quarter, and the financial results reported for
the third quarter may not necessarily be indicative of future results. The
foregoing is not intended to be an exhaustive list of all factors which
could cause actual results to differ materially from those expressed in
forward-looking statements made by the Company. For more information about
the Company, please review the Company's most recent Form 10-K filed with
the Securities & Exchange Commission.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's unaudited consolidated financial statements presented
elsewhere herein. The discussion of results should not be construed to
imply any conclusion that such results will necessarily continue in the
future.
NET PRODUCT SALES
Net sales for the third quarter of 1997 increased $105,000, or 8%, from the
comparable quarter in 1996, and net sales for the nine months ended
September 30, 1997 decreased $157,000, or 4%, from the comparable 1996
period. International shipments in the first nine months of 1997 were
$512,000 (14% of total shipments) compared to $664,000 (17%) for the first
nine months of 1996. Product sales during the nine months ended September
30, 1997 were less than the prior year because bookings were down,
particularly bookings shippable on a short term basis. During the third
quarter of 1997, shipments were more than the comparable quarter in 1996,
while bookings were more than in 1996 for both the second and third
quarters. Most of the increased bookings will be shippable in the future.
The backlog of unfilled product orders was $2,250,000 at September 30,
1997, compared with $1,672,000 at December 31, 1996 and $2,004,000 at
September 30, 1996.
COST OF GOODS SOLD
For the nine month period ended September 30, 1997, the Company used 76.9%
as its estimated cost of goods sold percentage. For the previous year,
1996, the actual cost of goods sold percentage was 74.8%. The Company
believes 76.9% better approximates the expected 1997 annual cost of goods
sold percentage based on estimated profitability of actual sales through
September 30, 1997 and the anticipated annual level of product shipments
and related costs.
For the nine month period ended September 30, 1996, the Company used 78% as
its estimated cost of goods sold percentage.
6
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $109,000 for the
first nine months of 1997. The increase is due primarily to higher selling
expenses, including sales salaries, due to the addition of a sales person,
increased travel, and a lower allocation of general and administrative
expenses to contract research and development. During the third quarter of
1997, Selling, General and Administrative Expenses increased $47,000 as
compared to 1996. This increase was due to additional selling expenses for
salaries, advertising and travel.
INTERNAL RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter ended September 30, 1997
were $25,000 compared to $62,000 for the quarter ended September 30, 1996.
Expenses for the nine months ended September 30, 1997 were $88,000 compared
to $130,000 for the comparable 1996 period. The Company is focusing its
internal research and development efforts in 1997 on a few new products
with short development cycles.
INTEREST EXPENSE
Interest expense was $64,000 for the quarter ended September 30, 1997
compared to $70,000 for the quarter ended September 30, 1996, and $194,000
and $215,000 for the nine months ended September 30, 1997 and 1996,
respectively.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1997, the Company signed an agreement
with Chase Manhattan Bank (successor to Chemical Bank) amending the terms
of its credit facility. The new agreement requires monthly principal
payments of $10,000 for January, 1997, and 7,500 from February 1997 until
December 1997, monthly principal payments of $10,000 from January 1998
until December 1998, and monthly principal payments $12,500 from January
1999 until August 1999. A final payment of $7,500 is due on September 1,
1999. The Company's cash flow requirements will increase in 1997 because
the Company must begin making cash interest payments ($110,000 annually) on
its Subordinated Convertible Notes issued in 1993. The first payment was
due on June 15, 1997, and was not made.
Capital expenditures, including internal labor and overhead charges, for
the nine months ended September 30, 1997 and 1996 were $74,000 and
$178,000, respectively. Until the Company is generating satisfactory
amounts of cash flow from its operations, it is expected that future
capital expenditures will be kept to a minimum. Management believes that
in the short term, this limitation will not have a material effect on
operations.
During the nine month period ended September 30, 1997 and for each of the
three years in the period ended December 31, 1996, the Company has suffered
recurring losses from operations. Cash outflows during these periods have
been funded on the basis of borrowings from, and issuance of common stock
and warrants to shareholders, including the principal shareholder, as
further described in the Company's Annual Report on Form 10-K. the
Company's liquidity is dependent on its ability to generate sufficient cash
flow from operations. This will substantially depend, however, on the
Company's ability to improve operating results and thereby generate
adequate cash flow from operations. Because of the uncertainty relating to
the Company's ability to improve operating results and cash flows, there is
substantial doubt about the Company's ability to continue as a going
concern.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
11. An exhibit showing the computation of per-share earnings is
omitted because the computation can be clearly determined from
the material contained in this Quarterly Report on Form 10-Q.
27. Financial Data Schedule.
(B) Reports on Form 8-K:
None
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INRAD, INC.
By: /S/ WARREN RUDERMAN
-------------------------------------
WARREN RUDERMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /S/ JAMES L. GRECO
-------------------------------------
JAMES L. GRECO
CONTROLLER
(Chief Accounting Officer)
Date: November 12, 1997
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES ONE AND TWO OF THE COMPANY'S 10Q, FOR THE YEAR TO DATE.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 172,447
<SECURITIES> 0
<RECEIVABLES> 756,132
<ALLOWANCES> 5,000
<INVENTORY> 1,656,964
<CURRENT-ASSETS> 2,766,333
<PP&E> 5,394,309
<DEPRECIATION> 4,278,858
<TOTAL-ASSETS> 4,326,045
<CURRENT-LIABILITIES> 1,058,419
<BONDS> 2,267,480
0
0
<COMMON> 21,216
<OTHER-SE> 978,930
<TOTAL-LIABILITY-AND-EQUITY> 4,326,045
<SALES> 4,029,373
<TOTAL-REVENUES> 4,029,373
<CGS> 3,166,289
<TOTAL-COSTS> 3,166,289
<OTHER-EXPENSES> 62,685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193,719
<INCOME-PRETAX> (434,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> (434,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (434,548)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> 0
</TABLE>
